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Lexmark International: A Strong Buy

On Feb 11, Zacks Investment Research upgraded Lexmark International Inc. (LXK) to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of positive estimate revisions over the last 30 days. Lexmark’s shares have given an outstanding one-year return of 72.7%. The company also delivered positive earnings surprises in the last four quarters with an average beat of 5.45%.

Why the Upgrade?

Over the last 30 days, Lexmark witnessed one upward as well as a downward revision for the current quarter. The Zacks Consensus Estimate increased a couple of cents to 85 cents over the same period of time.

Lexmark also witnessed four positive estimate revisions in the last 30 days which prompted a 22 cents increase in earnings estimates for the fiscal 2014 which is now pegged at $3.90 per share.

It is also worth noting that the Zacks Consensus Estimate for Lexmark’s first quarter and fiscal 2014 earnings are within management’s guided range. Lexmark expects its first-quarter earnings (non-GAAP) guidance range of 80–90 cents. Non-GAAP earnings for fiscal 2014 are expected in the range of $3.80–$4.00 per share.

Some of the buoyancy surrounding the shares is related to the company’s growth across all its business segments and improved Imaging Solutions and Services (ISS) performance in the last reported quarter. We see favorable growth prospects for Lexmark in the software sector and it is also trying to innovate with new hardware solutions.

Despite an overall tepid outlook for the printing industry, Lexmark is doing really well in the Managed Printing Services (:MPS) market and is winning deals continuously. We consider the Inkjet exit to be a positive as Lexmark will now be able to focus more on MPS and the software business where growth prospects are better.

Moreover, the company’s restructuring and share buyback plans could boost share price in the near term. These factors culminated in the Zacks Rank upgrade on Lexmark shares.